Ownership by freehold and leasehold of a property are both defined as business real property. An SMSF purchasing a freehold business and leasing the business real property to a related party business, can be achieved. The SMSF can purchase leasehold premises without borrowing.
For example would be a business which includes all the additional fixture that were added when the business was established years ago + any new improvements. The current business pays rent of the commercial premises to the landlord, and the SMSF can purchase this leasehold business, which includes furniture & fixtures, then sub-lease the commercial premises back to either a related party business or a non-related 3rd party. The lease agreement would be transferred from the current business to the SMSF. Another commercial lease agreement from the SMSF to a new business owner would be made at commerical terms.
Some important points need to be considered when an SMSF purchases leasehold premises without borrowing, to ensure compliance at start and continuing on.
The points of concern (where the SMSF is not borrowing to finance the arrangements) are:-
1. The investment strategy must contain a reasonable argument that the investment is sound and suits the retirement needs of the fund’s members and resources of the fund etc.
2. The investment must be for the sole purpose of providing retirement or death benefits for the fund’s members: the motive must not be for example, to provide a job for a member of the fund or a related person (although that could be an incidental result of the arrangement, and recent changes make this easier).
3. All transactions must be at “arm’s length” (market value and proper wage rates).
4. The transaction should be carried out in such a way as to avoid any related party transaction which is not permitted by superannuation law.
5. Proper arrangements should be established to provide records of all investment decisions, fund resolutions, and transactions to demonstrate compliance.
For further discussion at Aussie Legal go HERE